Lovelace v. Webb

BRICKELL, C. J. A sale of property, real or personal, under execution, passes to the purchaser no other or greater interest than that which the defendant may have when the lien of the execution attaches, or may acquire before the sale, no question arising as to conveyances by the debtor in fraud of creditors. The lands claimed by the appellees, Webb and Beck, as purchasers at execution sale, were under a mortgage prior to the rendition of the judgments and the issue of executions thereon, under which they purchased, the validity of which is undisputed. The only interest of the judgment debtor was an equity of redemption. The statute subjecting to levy and sale, under execution at law, an equity of redemption in either land or personal property declares : “ The purchaser is subrogated to all the rights of the defendant, and subject to all his disabilities.” — Code of 1876, § 3209. Prior to the Code of 1852, an equity of redemption in lands was not the subject of levy and sale under execution at law. It is a valuable interest in and to lands; in equity comprehending the beneficial ownership, the mortgage being-regarded as a mere security for the payment of the mortgage debt. Through the medium of a court of equity, judgment creditors could redeem, or they could compel the mortgagee to a foreclosure by sale, and subject to the satisfaction of the judgment, whatever surplus of the proceeds of sale remained after satisfying the mortgage. The purpose of the statute is to benefit the mortgagor and his judgment creditors alike, by subjecting the equity of redemption to levy and sale under execution at law, avoiding the delay and expense of a suit in equity, and having it applied to the payment of debts other than the mortgage debt. When the sale is made, however, it is of the equity of redemption, of no other or greater interest, and the statute in words expresses the legal consequence — the purchaser is subrogated to all the rights, and subject to the disabilities of the mortgagor. The mortgage remains as valid and operative as a security, encumbering the lands to the same extent it encumbered them while the equity of redemption remained in the mortgagor, The premises continue the primary fund for the payment of the mortgage debt, and the purchaser of the equity of redemption takes it subject to the paramount lien of the mortgage. His purchase is of the equity only; it is its value only, the law intends, for which he bid and paid. While he incurs no personal liability for the payment of the mortgage — 279 — debt, whatever of interest he acquires in the land is subject to the mortgage. — Meyer v. Prayn, 7 Paige, 470; Vanderkamp v. Shelton, 11 Paige, 28; Fink v. Reynolds, 33 Ill. 495 ; Stephens v. Church, 41 Conn. 369; Tice v. Annin, 2 Johns. Ch. 128. The mortgagor is not bound legally or equitably to pay the mortgage debt, or contribute to its payment, for the ease or benefit of the purchaser of the equity of redemption. — Cherry v. Munn, 2 Barb. Ch. 318 ; Russell v. Allen, 10 Paige, 249. Nor to aid in redemption has the purchaser the right to require that the mortgagee shall exhaust other securities for the payment of the mortgage debt. — Stephens v. Church, 41 Conn. 369. The principle prevailing in the marshaling of assets, or between creditors with liens or incumbrances, that when one has a lien on two different parcels of land, or on two funds, and another has a junior lien on one only of the parcels, or on one only of the funds, the prior creditor or incumbrancer will be compelled to exhaust that fund first, to which the junior cannot resort, cannot be invoked by the purchaser. He stands in the place of the mortgagor, having no other or greater rights, and is subject to his disabilities. A debtor, bound absolutely to the payment of his debt, (unless his homestead rights are involved, and as to these we express no opinion,) can. have no equity to compel the election of his creditor, as to which of two funds equally liable, shall be applied in payment of the debt. Rogers v. Meyer, 68 Ill. 92. Payment of the debt, his legal and moral duty will relieve each fund. The rights of the purchaser of the equity of redemption are no other or greater than the rights of the mortgagor. The principle is a pure equity, founded in a broad and comprehensive justice, akin to the maxim, sic utere tuo ut alienum non Icedas. It is never applied and enforced, to the injury, or to lessen the rights of third persons. If the purchaser could compel the mortgagee to exhaust other securities for the payment of the mortgage debt, to aid him in redemption, the injustice would result of compelling the mortgagor to pay, or contribute to the payment of the mortgage debt, increasing the value of the equity of redemption for the benefit of the purchaser. The equities of the mortgagor and of the purchaser would be reversed, as between them the land is primarily liable for the payment of the mortgage debt, and if that should be satisfied from other property of the mortgagor, a court of equity would subrogate him to the rights of the mortgagee against the land. In Tice v. Annin, 2 Johns. Ch. 128, said Ch. Kent: “ If a judgment creditor, other than the mortgagee, sells the equity of redemption, the mortgagor reaps the benefit of that equity, by having it ap — 280 — plied towards the payment of his other debts, and the mortgage debt remains, without any confusion, as a distinct and separate incumbrance; and if the mortgagee, in such a case, should elect to proceed against the original debtor at law, instead of seeking to foreclose his mortgage, and should endeavor to collect his money out of other property of the mortgagor, this court must either stay such a proceeding, or compel him, upon payment, to assign over his debt and security to his debtor, so as to enable the debtor to indemnify himself out of the mortgaged premises. The one course or the other would be indispensable to prevent the purchaser of the equity from obtaining and holding the whole interest in the land, when he purchased and paid only the value of the equity of redemption.” Nor can any inquiry be entered upon as to whether the purchaser bid and paid more than the real value of the equity of redemption. The maxim, caveat emptor, applies in all its rigor to judicial sales, and no fraud being imputable, the injudiciousness of the purchaser cannot create an equity in his favor.— O’Neal v. Wilson, 21 Ala. 288. The necessary legal intendment is, that he paid no more than the value of the equity of redemption, the value of the lands, the mortgage debt being deducted, and if he could throw the payment of the mortgage debt on the mortgagor personally, or on other property of the mortgagor, he would obtain an interest in the lands he had not bought, and for which he had not paid. It results, the Chancellor erred in appointing a receiver to take charge of the personal property conveyed by the mortgage, and in ordering its sale, and the application of the proceeds of sale to the payment of the mortgage debt. There is great contrariety of opinion as to the validity, and the operation of mortgages intended as a security for future advances, and when the rights of judgment creditors, or of subsequent purchasers, or of junior incumbrancers, are involved, many difficult and embarrassing questions arise. The Supreme Court of Mississippi, in a very careful opinion, state a view of the doctrine, which seems to us supported by principle and by the weight of authority : “ A mortgage to secure future advances, which on its face gives information as to the extent and purpose of the contract, so that a purchaser or junior creditor may, by an inspection of the record, and by ordinary diligence and common prudence, ascertain the extent of the incumbrance, will prevail over the supervening claim of such purchaser or creditor as to all advances made by the mortgagee within the terms of such mortgage, whether made before or after the claim of such purchaser or creditor arose, It is not necessary for a mort — 281 — gage for future advances to specify any particular or definite sum which it is to secure. It is not necessary for it to be so completely certain as to preclude the necessity of all extraneous inquiry. If it contains enough to show a contract that it is to stand as a security to the mortgagee for such indebtness as may arise from future dealings between the parties, it is sufficient to put a purchaser or incumbrancer on inquiry, and, if he fails to make it in the proper quarter, he ■ cannot claim protection as a tona fide purchaser.”— Witczinski v. Everman, 51 Miss. 846 ; see, also, 1 Jones on Mort. § 364, et seq., and authorities cited. We do not understand that the case of Allen v. M. R. R. Co. 11 Ala. 451, conflicts with this view. The mortgage or trust deed in that case, was not a security for a creditor who had come under an obligation, express or implied, to the mortgagor to make future advances. Its object was to secure bonds issued, and to be issued for the construction of a railroad. Until the isspe and negotiation of the bonds the mortgage was inoperative as a security — there was no creditor to whom the mortgagor was bound, and none under any obligation to him. But when there is a contract existing, on the faith of which and the security of the mortgage, the creditor makes advances, and promises future advances to a definite amount, or for a specified purpose, the mortgage is a valid security for all the advances the creditor has bound himself to make, and will prevail over subsequent incumbrances, whether these are created by the contract of the mortgagor, or by operation of law. — 1 Jones Mort. §§ 364, 370-372. In the present case, the mortgage recites as one of the debts secured, the sum of three hundred dollars advanced on the day of the execution of the mortgage, to enable the mortgagor to make a crop. The proof shows that sum was not then advanced, but there was a verbal agreement that it should be, and it was advanced for the purpose expressed, during the year in which the crop was raised. The verbal agreement was sufficient — it imposed on the mortgagees the duty of making, and ’ the liability to make advances to the amount expressed, and from the duty and liability they were not absolved, because before the amount had been advanced, judgments were rendered and executions issued against the mortgagor, of which they had no notice; and of the fact of notice, at any time before they had made the advances, this record furnishes no evidence. — 1 Jones Mort. § 375. The mortgage was properly recorded, and whoever after its execution, acquired any lien or encumbrance on the property mortgaged, acquired it with constructive notice of the prior right, duty and liability of the mortgagees, and in subordination — 282 — to it. The. chancellor consequently erred in disallowing the lien of the mortgage, as a security for the advances, to the full amount expressed, whether the advances were prior or subsequent to the lien of the executions under which Webb and Beck purchased the equity of redemption in the lands. It seems to be supposed, the judgments operated a lien, and as the mortgage was subsequent to their rendition, it could not as against them afford a security to the mortgagees. The chancellor was misled by a decision of this court, which was recalled during the term it was rendered, but not recalled until he had pronounced judgment. Judgments are not liens — the execution operates a lien, “ on the lands and personal property of the defendant, subject to levy and sale, from the time only that the writ is received by the sheriff.” Code of 1876, § 3210. The mortgage was prior to the delivery of executions to the sheriff, and of consequence had precedence over them, for all advances made to the extent of three hundred dollars. Whatever advances were made to the laborers of the mortgagor, by the mortgagees, should be deducted from the proceeds of the sales of the crops, so far as they were received by the mortgagees, in priority of the three hundred dollars advanced to the mortgagor and the precedent mortgage debt. There is manifest injustice in permitting the mortgagor, or his judgment creditors, or the purchasers of the equity of redemption in the lands, to claim the benefit of the proceeds of the sales of the crops, until these advances, which were contributions to the production of the crops, have been paid. The rents for 1875, which Junkins may have received, or which the tenants may have paid to the mortgagees, stand on a different footing. The appellees either as júdgment creditors, or as purchasers of the equity of redemption, have not a shadow of claim to them. As purchasers of the equity of redemption, they can have none, because their purchase was subsequent .to the time when the rents accrued. As judgment creditors they can have none, because on the rents their executions were not a lien. In the accounting of the mortgage debt, they ought not to be computed, unless before the sheriff’s sale, the mortgagor, or mortgagee, had applied them to the payment of the mortgage debt, and then only to the amount which remained after satisfying the advances made to the tenants by the mortgagees. A mortgagor, until the entry of the mortgagee, after condition broken, is entitled to the rents and profits, unless the mortgagee intercepts them by notice to the tenants. The purchasers of the equity of redemption became entitled to the rents of 1876, falling due after the conveyance to them. — 283 — Smith v. Houston, 16 Ala. 111; Tubb v. Fort, 58 Ala. 277. As assignees of the mortgagor by operation of law, they became entitled to the rents; and they take them subject to all the equities, to which they were subject before and at the time of the assignment. — Taylor’s Land. & Tenant, § 437. Whatever advances were made to the tenants, by the appellants, under the mortgage of the crops of 1876, must be deducted from the rents, and it is the remainder only to which the appellees are entitled. The mortgage was executed, and an equity in favor of the appellants created before the assignment to the appellees, and to the equity the assignment is subject. The decree of the chancellor on the original bill must be reversed, and the cause remanded for further proceedings in conformity to this opinion. The questions arising in the appeal from the decree on the cross-bill, arq first, as to the right of the mortgagor to a homestead in the premises, be having but an equity of redemption therein; second, whether as against the appellee Webb, whose judgment was founded on a contract or debt created in 1866, the laws of force when the judgment was rendered, and the sale made allow a homestead ? The second question alone is necessary to consider. The exemption of property, real or personal, in which a debtor has an actual beneficial interest, from liability for the payment of debts, is derived from, and dependent on statutory or constitutional provision. The statute, or constitutional provision of force, when the debt is contracted, not subsequent statutes or constitutional provision, define and declare it. When the debt to Webb was contracted, the statutes were of force subjecting to levy and sale, an equity of redemption in real estate, or in personal property, and they have been continued without interruption. The constitution of 1868, which the constitution of 1875 follows in this respect, declared exemptions of property from liability for debts, but limited the exemptions to debts contracted subsequent to the time when these constitutions became law. Before either constitution, it had been a legislative policy, to save debtors, the heads of families, having on them wife or children, in a condition of legal dependence, whom they were bound by law to maintain, from being reduced to want and inability to discharge the legal duty of maintenance. .Various statutes founded in this policy, were from time to time, through a period of more than forty years enacted, and were incorporated in the Revised Code of 1867. The act of April 23,1873, in all its terms, letter and spirit, a revision of all former statutes relating to the sul ject (Pamph. — 284 — Acts 1872-3, p. 61), repealed in express words and by express reference to the Revised Code, the former statutes to which we have referred, and “ all other statutory laws and parts of statutory laws, heretofore in force in this State, exempting property from the payment of debts or administration, or relating thereto.” The result was, that as to all debts contracted prior to the adoption of the constitution of 1868, after the enactment of this statute, there were no exemptions of any property to heads of families, or to the resident having no family. The statutes in existence when the debt was contracted, were repealed. The exemptions allowed by the act of April 23, 1873, passed after the debts were created, different from and exceeding those allowed by former statutes, could not be claimed. The constitution of 1868, applied to debts contracted after its adoption, and not to prior debts. There was then no law of force when the lien of "Webb’s execution obtained, and when the sale by the sheriff was made, under which an exemption could, as against it, be claimed. The purchaser at execution sale takes the property with the full benefit of the lien of the execution. The sheriff, by virtue of the lien of this execution, whatever may have been the rights of the defendant as against the execution in favor of Beck, could sell and convey to the purchaser the equity of redemption, free from the claim or right of homestead of the mortgagor. There was no such right as against the purchasers at the execution sale — no law conferring it. The cross-bill was, therefore, properly dismissed, and the decree of dismissal is affirmed.